What Happens To Shares When A Business Goes Bust?

Twointhebush

What happens if I buy shares in a business that then goes bust? If it's bought by another business, do I still own the shares?

MaxiRobriguez

The shares become worthless if the business goes bust.

If another business buys it, then it hasn't gone bust, it's been bought out. What happens with your shares then depends on the type of takeover.

Afraid_of_Kittens

Twointhebush wrote: »

What happens if I buy shares in a business that then goes bust? If it's bought by another business, do I still own the shares?

The shares become worthless.

Once the assets have been liquadated the shareholders might be entitled to a share if there is anything left over once debts have been paid.

The shareholder is borrom of the list of creditors.

talexuser

Twointhebush wrote: »

What happens if I buy shares in a business that then goes bust?

Generally speaking tears get shed!

Aretnap

If a company is liquidated the shares cease to exist. The assets are sold and the proceeds are used to pay off creditors; if there is any money left over once creditors have been paid (unlikely if the company has 'gone bust', though solvent companies are sometimes liquidated too) then it will be divided between the former shareholders.

Sometimes an insolvent company will be bought as a going concern. Generally this will involve an agreement between the creditors and the buyer to write of a portion of the companies debts in return for the buyer paying our taking on the rest of the debts - presumably because this will mean getting more money back for the creditors than simply winding up the company would. Again shareholders rank at the bottom of the pecking order and typically would lose their shares and get nothing in return.

So all else being equal it's best not to invest in companies that are going to go bust...

Twointhebush

So is there a window of opportunity just after the insolvent company has been bought? Do the share prices stay the same as before the purchase (hopefully low)? I guess for someone like me it would be difficult to get the timing right?

Neil_Jones

Twointhebush wrote: »

So is there a window of opportunity just after the insolvent company has been bought? Do the share prices stay the same as before the purchase (hopefully low)? I guess for someone like me it would be difficult to get the timing right?

Depends on the nature of the deal to buy the company and what state its in. A lot of the time the company has gone bust because it has sky-high debts and its physically out of money.

If the brand is kept but its a new company, your shares are null and void anyway because they'd be in the old company. Which wouldn't exist.

bowlhead99

Twointhebush wrote: »

So is there a window of opportunity just after the insolvent company has been bought? Do the share prices stay the same as before the purchase (hopefully low)? I guess for someone like me it would be difficult to get the timing right?

You mean a window of opportunity for you to buy new shares in a dead company that a different company has just bought and taken over?

It sounds like you misunderstand the process. If the insolvent company has been 'bought' by a buyer, the majority of the shares of the insolvent company are owned by the buyer who purchased them and took over the company. The buyer is not going to sell them to you at a price 'the same as before the purchase (hopefully low)'. And if you are already a shareholder he is probably not going to pay you much if anything for your shares if the company would die without his money. If the buyer does pay something meaningful to the old shareholders, and you are one of the shareholders, you will get your chance to accept the offer and sell to him.

It is probably best for you to assume that any shares you own in a company that's in the process of going bust, will be worth £0. Rather than to gamble that if you get the timing right you can get a great spike in value at the last moment to cash out, or buy more shares cheaply at the eleventh hour in some magic 'window of opportunity' and come away with riches or reduce your losses.

It would rarely be possible to profit from a last-minute rescue, and as you probably recognise, "for someone like me" to come out of it better than the average investor is not really going to happen - because you are not someone who has a deep understanding of the process, and you are competing with experienced global investors around the world who include full time professional analysts representing billions of dollars of investible capital.

There are examples where you can take a bit of a punt on a failing business and get lucky as a contrarian investor - for example a few years back I bought some preference shares in the failing Co-op Bank at a low price, and as part of the rescue restructure they were converted into a decent amount of debt in the wider Co-op group, which was solvent, and I made a good return in a short space of time. But the return potential was only there because it could have gone wrong and seen both equity and pref holders wiped out, or only given a smaller financial interest in something less creditworthy.

seb345

I honestly would like to know that myself. I have a business ( a set of of a few stores) and we have some stock value on the market, but with the pandemic it is very likely that I will have to close up shop and it is interesting to know if the people that have invested in me will lose money or if I sell they will keep their money's worth. I am honestly am not that happy with the situation. I have worked really hard to build myself up from the ground but with the second lock-down I am honestly left with little to no choice. I have been looking for a buyer for a few months now (I started before the second lock-down) and I am still talking price and logistics but I am almost certain that I have found a buyer. I also started compiling all the documents needed to sell a business since I know that these things take time. I have had help from a company that actually does this for a living so I am hoping that everything will be fast and effective. So yeah guys if you have any information regarding the stocks I would love to know that. I would rather have people sell the shares then lose money.

ElephantBoy57

seb345 said:

I honestly would like to know that myself. I have shares in a business that is probably going to go bankrupt because of the pandemic

It may help if you name the company. I had shares in Interserve and NMC Health, lost all my money. Hopefully my share increases in other companies will cancel out the loss.

eskbanker

seb345 said:

I honestly would like to know that myself. I have shares in a business that is probably going to go bankrupt because of the pandemic

Assuming you're referring to the question in the thread title, the answer was already given in the first reply....